by Marisa Van Wie, Owner/Founder/CEO of NCC
What do we know about “Turnkey Projects”? From our seat in WA State, we understand a turn-key project to be one in which a public agency leases land for development to then be used by the public agency. This kind of turnkey project is typically covered by WA’s prevailing wage laws.
Our work in OR further informs us that projects designed to house offices for public agencies can trigger prevailing wage requirements even in the absence of public funding. We also know that Turnkey projects examined within the Intermodal Surface Transportation Efficiency Act were covered by Davis-Bacon related wage acts (source: US Dept of Transportation).
So what is different about the Police training facility being built in Pennsylvania?
It has been found that the development of a structure that will serve as a police training facility and barracks is not covered by prevailing wage. The findings of fact are:
(1) The Developer owns the land
(2) The facility is designed to meet the specifications laid out by the State Police
(3) The Developer secured the financing for construction of the facility
(4) That financing is contingent on the existing lease agreement with the Commonwealth (Police Department)
(5) If the Commonwealth terminates its lease early, it will reimburse the Developer
(6) A provision was included in the lease agreement, as is standard, that the Prevailing Wage Act must be complied with
Upon initial investigation, the Department of Labor and Industries views this the way that we would as Prevailing Wage professionals – this is covered work. Even if the State Police is not directly funding the project, it will be paying rent per the lease agreement, which was used to secure the funding, which will ultimately fund the project. Further, the development is to the specification of the State Police, being built for their needs and following their timelines. Bottom line – this will be paid using public funds for use by a public agency.
However, in the grievance we hear the Developer argument:
(1) The Commonwealth does not own the land
(2) The State Police did not hire the Developer to create a facility for Commonwealth ownership
(3) The Commonwealth did not provide any funding for construction
(4) If the lease is broken early, the Developer still bears risk and stands to lose substantial amounts of money
The Developer argues that the only form of payment from the Commonwealth will be rent, which will only be received at occupancy, and only serves to give the State Police the right to use the space – it does not designate ownership. This in mind, the Developer is arguing that this agreement is not a construction agreement for Public Work – it is a standard landlord-tenant agreement.
Hinging on this argument and viewing the argument through the lens of a standard landlord-tenant agreement, we can see how this work may not be covered by the Act. Standard landlord-tenant agreements are structured in a way that a developer would recoup their cost from occupancy by any tenant. If this were not the case, nothing would be developed. Whether the cost is recouped by the State Police, or the lease is to be broken and fulfilled by another tenant, the Developer bears both the interest and the risk in this building facility.
The Pennsylvania Prevailing Wage Appeals Board asserts that the rent combined with the terms of the lease agreement designates ownership; however, they fail to provide proof that the lease is not, indeed, a standard landlord-tenant agreement.
References:
(1) https://www.transit.dot.gov/sites/fta.dot.gov/files/docs/Turnkey_Demonstration_Program_Report.pdf; Lessons Learned: Turnkey Applications in the Transit Industry
(2) https://law.justia.com/cases/pennsylvania/commonwealth-court/2023/576-c-d-2022.html ; Opinion by Senior Judge
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